Our starting point has to be the design of the UK's first CCS competition process, launched back in 2007. It requested that bidders come forward with proposals for CCS projects using post-combustion technology – one of the three options for removing CO2 from fossil fuel power stations. This focus was driven by an attempt to align different policy objectives: a desire for new coal power in the UK energy mix, and the development of technology suitable for export to China. Politicians of the time liked to portray this approach as forward-looking, but it failed to anticipate upcoming problems.

As the competition proceeded, the economic case for new coal plants collapsed in a firestorm of negative signals: the financial crisis was compounded by reduced energy demand, increased costs of construction and capital, the perceived increased availability of gas, and greater urgency for power sector decarbonisation. One by one the other bidders dropped out in a process of attrition rather than competition.

The Longannet CCS project survived until now because it was a retrofit project not dependent upon the construction of a new power station. But while this had some economic advantages, the negotiating process has revealed that the additional costs of upgrading the rest of the power plant have reduced the cost effectiveness of its CCS proposals.

The coalition government therefore deserves credit for persisting with the competition at all – it could easily have been scrapped after the general election. Instead, the government committed substantial resources to the process and entered into negotiations. Without being able to compare offers from competing projects it had a duty to maintain a focus on securing value for money for taxpayers. Ultimately the realities of the Longannet project didn't allow that deal to be reached.

The most significant part of yesterday's announcement was that the £1bn committed to the UK competition will be maintained by Decc to support future projects. This clears the way for the UK to co-finance any winning projects from the European process, leveraging additional funding and allowing projects to enter operations by the 2016 target date. By maximising its chances of securing these projects, the UK remains on track to demonstrate CCS in time to enable power sector decarbonisation to proceed during the 2020s.

There is also positive news when we consider the technologies of the UK projects bidding for EU funding. One is on gas (Peterhead), while of the coal projects three are for pre-combustion technology (Don Valley, Eston Grange, Killingholme) and one is oxyfuel (Drax). All of these coal options would fully capture CO2 emissions, improving both their economic case and avoiding public opposition as was the case with the former Kingsnorth CCS proposal. Of the current proposals, only the Hunterston project failed to learn those lessons, and will need to come back in a new format if it wants to stand any chance of moving forward.

When compared with their European competitors it is clear that UK projects are leading the charge, with the Don Valley, Drax and Peterhead projects at the front of the pack in their respective technologies. The Don Valley project has already received a separate €180m (£158m) of EU funding, currently enabling National Grid to develop plans for the CO2 pipeline. The likely route would pass close to Drax, enabling the immediate creation of a CO2 infrastructure in Yorkshire, catalysing opportunities for further projects.

The immediate challenge facing the government is to confirm the details of how it will use its £1bn to leverage this EU funding. It can then launch a fresh call for projects in the UK demonstration programme. The coalition has committed itself to securing four demonstration projects, and new bidders are likely to come forward in response. CCS in the UK is far from dead. Watch this space.